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May 12, 2009

Modification (SEPP)

Your Guide



The disqualification of a substantially equal periodic payment (SEPP) program. If a SEPP program is modified, the taxpayer is required to pay the IRS all of the early distribution penalties that were waived under the program, plus any IRS assessed interest.
If a SEPP is discontinued because the retirement account owner is disabled or deceased, that is not considered a modification.
If the SEPP is discontinued because the account balance had been depleted and the SEPP was maintained under an IRS approved method, that is not considered a modification.
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Additional Helpful Information
  • Although a SEPP generally requires that the annual total payment  be an identical amount each year, use of the Required Minimum Distribution (RMD) method does not result in a modification even if the payment total changes from year to year, providing there is no change to another method of determining the payments
  • A modification will occur if any of the following occurs after the date on which the account balance had been determined, for purposes of calculating the SEPP (i) any addition to the account balance other than gains or losses, (ii) any nontaxable transfer of a portion of the account balance to another retirement plan, or (iii) a rollover by the taxpayer of the amount received resulting in such amount not being taxable.
  • An individual who begins a SEPP under either the fixed amortization method or the fixed annuitization method may, in any subsequent year switch to the required minimum distribution method to determine the payment for the year of the switch and all subsequent years and the change in method will not be treated as a modification

Written By

Denise Appleby

Denise is CEO of Appleby Retirement Consulting Inc., a firm that provides IRA resources for financial/ tax/legal professionals. She has over 20 years of experience in the retirement plans field, which includes training and technical consultation.

Denise writes and publishes educational /marketing tools for advisors; available at Denise co-authored several books on IRAs

Denise is a graduate of The John Marshall Law School, where she obtained a Masters of Jurisprudence in Employee Benefits, and has earned 5 professional retirement designations.
She has appeared on numerous media programs, sharing her insights on retirement tax laws.


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